OSP Working Paper Series 43 A Market-based Approach to Establishing Licensing Rules : Licensed Versus Unlicensed Use of Spectrum February 2008

The FCC uses an administrative process for identifying the most desirable set of licensing rules for spectrum. Spectrum designated to unlicensed use is made freely available for uses which comply with appropriate technical standards. Spectrum allocated to licensed use is generally awarded to private parties through an auction mechanism. The allocation between licensed and unlicensed use, however, is based on the FCC’s judgment, which in turn relies on information provided by interested parties who seek to use the spectrum. One method of reducing the incentive that parties have to exaggerate the value they place on a given regime involves creating a market for such rules. We examine the feasibility of using a “clock auction” to determine, based on the bids submitted by market participants for the corresponding licensing rules, the efficient allocation of a given amount of spectrum between licensed and unlicensed spectrum use. Analysis indicates that market forces, in the form of a clock auction, can be used to determine the efficient assignment of license rules to spectrum. TABLE OF CONTENTS